German FinMin Open to Greek Referendum

The late news from the make-or-break talks in Brussels was no news at all, really. There were a few encouraging words for the progress Greece is making on its reform plans. Athens also ordered a €750m (£535m) repayment to the International Monetary Fund. But an agreement on releasing €7.2bn of bailout funds? No.

There was, though, one intriguing sub-plot. Germany, in the form of finance minister Wolfgang Schäuble, suddenly seems taken by the idea of Greece holding a referendum.

“If the Greek government thinks it should have a referendum, then it should organise a referendum,” said Schäuble. “Maybe this would be the right measure to let the Greek people decide if it is ready to accept what is necessary, or if they want to have the other thing.” By the other thing, he means an exit from the euro.

In one sense, Berlin and Brussels’ sudden conversion to a plebiscite is surprising. When a former Greek prime minister, George Papandreou, suggested holding a referendum in 2011 he was summoned to Brussels and told to drop the idea sharpish. Asking the people to decide was deemed far too dangerous.

So what’s Schäuble’s game? Depressingly for Athens, the moral seems clear: a referendum no longer carries the same fear for Germany. Berlin thinks it holds a winning hand whatever happens.

If Greeks voted to stay in the euro, Berlin could claim democratic legitimacy for a tough reform programme encompassing pensions, tax, wages and privatisations. If Greece said no, then at least there would be resolution. Germany is perhaps being optimistic in believing the market fallout from Grexit would be minimal, but that is what its leading politicians believe. They are happy to take their chances.

via The Guardian

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza